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Greece’s leaders face third day at the negotiating table

By: | 06 Feb 2012

Greece’s ruling parties will meet for a third consecutive day today in yet another effort try to agree austerity measures that are the preconditions for more bailout money, as other European leaders warn them a final deadline approaches before their country officially becomes bankrupt.

Closer to home, however, they have the implicit warning of social unrest, as two of the country’s largest public sector unions plan strikes today.

On Sunday the three parties in Greece’s governing coalition partly agreed on various measures.

These included public sector spending cuts equivalent to 1.5% of GDP, re-capitalising Greek banks, and cutting the minimum wage and pension entitlements.

Yesterday there was little progress. This led a frustrated German chancellor Angela Merkel and her French counterpart Nicolas Sarkozy to say jointly they “could not quite understand why we need a few more days, time is running out.”

Sarkozy gave a stark warning: “Greece’s leaders have made commitments and they must respect them scrupulously. A date is approaching, however, when – if there isn’t a deal – Greece faces bankruptcy”.

That date is 20 March, when €14.4bn of bond repayments are due. The €130bn tranche of bailout would cover that.

Sarkozy and Merkel yesterday proposed setting up a separate account to take Greek interest payments. The extra comfort this gave Greece’s creditors – even in such uncertain times – helped limit losses in US equity trading to about 1%.

But it is not clear Greece’s leaders will agree enough today to qualify.

Stephen Wood, chief market strategist for Russell Investments, told Bloomberg yesterday: “We are in the hands of the best efforts of European politicians. That’s a source of risk that is difficult to forecast.”

Greece’s unions are opposing wage cuts, and the leader of the GSEE private-sector union said the proposed 20% to 30% reductions to private sector wages were “a pending death”.

Greece’s debt hit 159.1% of gross domestic product in the third quarter of 2011 – up from 138.8% a year before, and from 154.7% in the second quarter.